Presidents and prime ministers from the EU 27 countries met on Friday to discuss next steps for a proposed European recovery fund to respond to the corona crisis and a new EU long-term budget for the 2020s. While these matters are mainly economic in nature, they represent what could become a major political milestone in the post-war history of European integration.
Last month, the European Commission laid out its vision for post-pandemic recovery across the continent with a proposed €750 trillion stimulus plan. To much self-acclaim, Commission President Ursula von der Leyen asserted “this is Europe’s moment … we either go it alone … or we pave a strong path for our people and the next generation”. Yet, while Von der Leyen was long on rhetoric, she is right to highlight that the pandemic has shaken Europe to its core. This is not just illustrated by the huge number of deaths, but also the economic fallout too. The European Central Bank forecasts a 15 per cent contraction of GDP in the single currency area in the second quarter, while the Commission has said that the 27 EU countries together could contract by 7.4 per cent this year.
The pandemic has exacerbated the bloc’s vulnerabilities that in the past decade have been driven by the Eurozone crisis, an influx of migrants, and growing Euroscepticism, including Brexit. In so doing, it has also intensified the political fault lines across the continent, intensifying long-standing splits between some northern and southern states.
The frugal four of Europe
In particular, there are clear and present divisions between Spain and Italy, hit hardest by the crisis, on one pole. Versus the so-called ‘frugal four’ of The Netherlands, Finland, Denmark and Austria who tend to be more fiscally conservative.
The Commission proposes that the €750 billion be divided into €500 billion for countries as grants, with the remaining €250 billion available as loans. Yet a battle royale potentially lies ahead as national governments, the European Parliament, and the Commission negotiate not just over the plan’s total budget, but also how much will be linked to grants (favoured by Italy and Spain) or loans (the preference of the frugal four).
If the ambitious Commission blueprint is ultimately ratified in coming weeks, it could prove a milestone in the post-war history of European integration given the prospect of mutualised debt as a funding tool for the first time, potentially paving the way for greater EU supranational powers of taxation. There is even talk about a ‘Hamilton moment’ for Brussels in reference to Alexander Hamilton, the Treasury Secretary for the newly created United States of America, who convinced the Congress in 1790 of the benefits of a common debt.
A breakthrough [EU-UK trade deal] remains possible in coming weeks with a deal potentially hammered out during the German presidency of the EU.
That this moment has arisen reflects not just the stresses that coronavirus has brought to the continent, but also Brexit given that the United Kingdom would have been sceptical of this federalist agenda. With London, however, no longer a member of the Brussels-based club, its voice is no longer heard in the debate.
While Brexit and the proposed EU-UK trade deal were not officially on Friday’s agenda, they were a key topic of informal discussion after Prime Minister Boris Johnson convened last week with EU Commission President Ursula von der Leyen and President of the European Council Charles Michel. Johnson, who confirmed last week that the Brexit transition will end in December, asserts that a trade agreement can be reached in July, but that assessment is very likely too optimistic even with the extra “oomph” in the negotiations that he advocates.
Johnson and his EU counterparts pledged last week to redouble efforts to agree the broadest possible trade deal which could then be ratified in or before December. With the mood music from that session upbeat, a breakthrough remains possible in coming weeks with a deal potentially hammered out during the German presidency of the EU which runs from July to December. Yet with deadlines closing in fast, there still remain significant likelihood of a hard, potentially disorderly end to the transition with no UK-EU agreement.
The ongoing Brexit talks served as a warning on Friday to the EU-27, in the midst of their continued divisions over the corona stimulus and long-term budget proposals that it is vital for the continent to come together in the face of its worst economic shock for decades. As ever, it will probably be France and Germany, the traditional motors of European integration, that are most likely to forge a consensus between the competing interests.
Whether they succeed, or not, in coming weeks will impact not just the continent’s economic recovery, but also potentially its social solidarity given that support for Brussels in some southern nations, like Italy, has plummeted given lack of support from EU partners at the beginning of the crisis, for which Von der Leyen has apologised. At this potentially historic crossroads, it is likely that an increasing number of European leaders will feel growing pressure not just to talk the talk, but also walk the walk, to try to foster economic recovery and regain public trust across the continent.
— Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.